Commentary on "Calculating Return-On-Investment For Condo Units"

A foreign investor requested a comment about the blog titled "Calculating Return-On-Investment For Condo Units". Below is my comment.

COMMENTARY: The rent of 15,000 is too high for a 23 sqm condo unit -- it should only be around 12,000 including Association Monthly Dues. But if you insist on 15,000 then OK as on the assumption that it is fully furnished (interior renovation, fixtures and furnishing costs at least 400,000).

If the rent is above 12,800, please include 12% VAT, which will reduce your 15,000 desired income by P1,800.

That Monthly Association Dues of P1,150/mo is the cheapest I know, so probably I assume that is a class D condominium.

That calculation also assumes the unit owner does it all by herself in showing the unit to prospective tenants. Since we assume she is an "investor", we would assume she must be gainfully working overseas or a local hard working RICH with no time to show the unit -- in reality, an absentee owner will have to hire a Professional Property Management Service which will cost her professional fee of P20,000 (with or without tenant) a year plus 8% Commission on the income from rent.

A condo investor who earns 4% ROI/yr is the luckiest among a line-up of 100 randomly picked unit owners. Although I would say a 6% ROI is possible if the Property Manager will put your property favorably on top of the line-up. If you present an assumption of 2 months vacancy cost, you have to present it in such a way that you will not run a risk of giving the investor a false promise of a 10 month occupancy rate -- that occupancy rate is very difficult to achieve if you ask a seasoned tenant head-hunter who have done-this-done-that.

If that is a brand new condominium, the moment the buyer pays the first Property Tax (around P4,000) in City Hall, she will have to stare with surprise at the assessed value of less than P150,000 for that unit and begin thinking she probably got ripped-off when she bought it at P1,200,000.

Surprisingly, in the end if the investor would want to liquidate the investment, she will have to offer that unit for sale at a price lower than the acquisition cost. Of course she has to pay 5% broker's commission.

FINAL WORDS

My last words for the investors, hmmmmm, if you really want to try to gamble an investment with Philippine condo, try the cheapest chip first. A small studio-type unit is best for investment trial purposes. Unless you are filthy rich who burns thousands of money without remorse, never start a trial investment with anything bigger than a studio-type condo. If you want to be introduced to non-Filipinos who have actual experience as condo investor in Philippines, just ask and I will refer you so you can learn from their experience.

If your money is hard-earned, like that of OFWs, save your self some tears, and trust me, the agent who sold the unit to you will not be by your side when the promised return of investment will not materialize. The agent can't help you resell that because it will compete with the other brand new units of the developer she exclusively works for.

Remember, before the sale, seller's agents will be nice to you; but after the sale, they won't care at all. Investment Scam in Philippines is a means of survival and widely practiced. Seller's agents would do anything, promise you high return of investment, to make you sign that deal. If the seller's agent is in a hurry to make you sign the purchase, read first my blog titled, "Is now the right time to buy and invest?". Another thing to watch out before you sign a purchase is the Lease-Back and Buy-Back Scams, the anomaly of Non-Disclosure of Master Deed. There are many more loopholes that you need to watch out for, I have written them all in my blog, but if you don't have 14 years to go through my experience as a Broker, then just hire a Broker Property Manager to watch your back during investment acquisition and all throughout the leasing out of the unit after the acquisition.

Since you are an investor and I am just a pro bono real estate service coach. Let me wrap it up with a light-hearted game where I will surely win (so I will earn income). Come with me and let's gamble. I will bring to any mall you want in Metro Manila where I can show you an amazing large pool of real estate agents hanging around handing out condominium marketing fliers. You bet your P40,000 (that is equivalent to around 1,000 US Dollars). The game is simple. We walk in the mall and you randomly pick 10 agents and get their fliers. Then we sit down and I will show you a website where we can determine who is licensed and who is not. If we can't find one licensed real estate agent from the randomly selected ten agents, I win your P40,000. The relevance of the game is about letting you discover, at the ground level, how big the anomaly is in Philippines on consumer risk associated with unlicensed agents (cum real estate investment consultants as how they call themselves). Wanna bet?

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Below is the assumption of the Investment Scam I commented upon: Calculating the ROI On Condo Units

Estimated cost of a 23 sqm unit of condo: P1,200,000

Estimated rental income per year (at Php15,000/month): P180,000

Less

Vacancy costs (2 months): P30,000

Monthly Dues (12mos at 1,150/mo): P13,800

Taxes: P5,500

Maintenance: P4,000

Insurance: P2,500

Net Income: P124,200

ROI = (Net Income / Total Cost of Unit) * 100

ROI : 10.35% per year or about 9 years & 8 months

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If there is anything else important that I forgot to include in this article, or if you experienced a real estate transaction that is anomalous, scam, fraudulent scheme that you want me to document and expose for others to be warned, or if you want to donate to the war chest of real estate consumer rights advocacy, please feel free to email me at JohnPetalcorin@Gmail.Com. If you want to comment about this article, there is a provision for this purpose that you can find below.
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